Do Elections Impact the Housing Market?

With the 2024 election just around the corner, many are asking: Will it impact home prices and mortgage rates? Whether you're a homeowner, home seller, buying your first home, or looking to upgrade, it’s important to understand how elections can influence real estate. We examined historical trends and economic factors to provide a neutral, educational overview of how elections have affected housing in the past, what might happen this election year, and how you can best prepare for changes in the market. Let's dive in!

The Role of Elections in Shaping Mortgage Rates

It may come as a surprise but, contrary to popular belief, elections themselves don’t directly impact mortgage rates or housing prices in a significant way. Mortgage rates move mostly based on the overall economy—things like inflation, the Federal Reserve's decisions, and how well the job market is doing. Historically, mortgage rates tend to fluctuate in small increments during election years, with other factors playing more significant roles.

Let's take a closer look at a few recent elections:

2008 Election:

The housing market was deeply impacted by the Great Recession. We saw rates drop dramatically in response to the struggling economy, while the election added uncertainty. This combination made the market highly volatile, with both buyers and sellers hesitant to make moves.

2016 Election:

After the election, mortgage rates inched upward. The surprising presidential outcome caused some uncertainty in the market, leading to higher rates as investors adjusted to the new administration’s potential policies. Despite the initial uptick, rates remained relatively low by historical standards, and the housing market stayed strong, with buyers still taking advantage of favorable conditions.

2020 Election:

Even with the intense election, mortgage rates stayed super low, around 3%, mostly because of the pandemic. The Federal Reserve stepped in to lower rates and keep borrowing cheap, which led to a rush in home buying and refinancing. Demand spiked, pushing prices up as both buyers and homeowners jumped at the chance to lock in these extremely low rates. It was a busy year for the housing market, despite all the political and economic uncertainty.

So, while elections can cause temporary fluctuations, they are typically not the driving force behind major rate shifts. Economic fundamentals like inflation, the job market, and government policy hold much more weight.

Election Year Uncertainty 

The main effect of elections on the housing market is the hesitation they often trigger in both buyers and sellers. During an election cycle, many people shy away from big financial decisions, which can lead to a temporary slowdown in home sales. This happened in both the 2016 and 2020 elections. However, once the results are in and market confidence is restored, activity usually picks up.

In 2016, the pre-election market saw a slight dip in home sales, but demand surged once the election was settled. Similarly, in 2020, home sales dropped in the months leading up to the election but rebounded afterward, fueled by low mortgage rates.

Additionally, we can't ignore the huge impact COVID-19 pandemic had on the housing market. In 2020, mortgage rates hovered around 3%, as the Federal Reserve tried to stimulate economic activity in response to the pandemic. Homeowners who locked in those ultra-low rates were reluctant to sell when rates shot up to 7-8% in 2023, slowing market activity. People were sitting on their low-rate mortgages, making it harder for them to justify selling or buying a new home at the higher rates.

The pandemic also led to record inflation, which, coupled with government stimulus checks, contributed to an increase in demand for homes. This drove home prices up dramatically over just two years. Between 2020 and 2022, many housing markets saw home values rise rapidly. The S&P CoreLogic Case-Shiller U.S. National Home Price Index showed a 41% increase in home prices from early 2020 to mid-2022. This surge made it harder for new buyers to enter the market and increased hesitancy among current homeowners to sell.

What Really Moves Mortgage Rates?

While elections can create some uncertainty, what happens in the economy and how those events affect investors’ confidence ultimately influences mortgage pricing. The Federal Reserve meets regularly throughout the year and adjusts the federal funds rate based on the economy’s health, aiming to keep inflation in check and encourage growth. These rate changes can influence borrowing costs for homeowners, but the connection isn't always straightforward.

A common misconception is that the Fed directly controls mortgage rates. In reality, mortgage rates are more closely tied to the bond market, specifically the yield on 10-year Treasury bonds. When the Fed cuts rates, it often leads to lower bond yields, which in turn can bring mortgage rates down.

For instance, in September 2024, the Federal Reserve announced a half-point rate cut to stimulate the economy, which is expected to lower mortgage rates even further. This is great news for buyers and refinancers, as it could mean smaller monthly payments, more buying power, and potentially thousands in savings over the life of a loan.

Historically, the Fed's actions during times of economic uncertainty, like elections or recessions, have had a bigger impact on the housing market than elections themselves. During the 2008 financial crisis, for example, the Fed slashed rates to help stabilize the economy. On the flip side, when inflation rises, the Fed raises rates to cool things down, which usually drives mortgage rates higher.

Is the Federal Reserve Connected to the President?

While the president appoints members to the Federal Reserve Board every couple of years, that’s about the extent of their connection. The Fed operates independently, and the President has no direct control over its decisions. Although the President can disagree with the Fed's decisions, the government can’t force it to change course. The Board of Governors holds the final authority on key strategies, ensuring that monetary policy is made without political pressure.

How Housing Markets React Post-Election

After elections, the housing market typically stabilizes and both buyers and sellers regain confidence. This can lead to a surge in activity, especially if the economy is strong and mortgage rates are favorable.

After the 2016 election, home sales jumped back up quickly as buyers re-entered the market. Prices steadily climbed in many areas, driven in part by the surge in demand. A similar trend happened in 2020 after the election, but this time, low interest rates played a big role in pushing even more buyers into the market.

While there might be some hesitation during the 2024 election year, the housing market’s fundamentals are still solid, especially with the recent Fed rate cuts. Lower mortgage rates should help keep demand steady, even if some buyers and sellers decide to pause during the election.

What This Means for Homeowners, Buyers, and Sellers

With the upcoming election and the recent Fed rate cut, here’s what to expect depending on where you are in the housing market:

Homeowners: If you’re thinking about refinancing, now could be the time. The Fed’s rate cut means mortgage rates could go lower in the short term. Locking in a lower rate now could save you a significant amount of money on your monthly payments.

Buyers: Election years can bring some uncertainty to the market, but that doesn’t mean you should hold off on making a move. With mortgage rates currently lower than they have been, it’s a great time for buyers to take advantage of more affordable homeownership options; waiting for a dramatic drop could lead to missed opportunities in today's market.

First-Time Buyers: If you're new to the market, 2024 presents an exciting opportunity to get in while rates are low - talk to a Churchill Home Loan Specialist now to understand your mortgage options and see if you can lock in a favorable rate.

Sellers: While the election could slow things down briefly, lower mortgage rates will keep buyers interested. If you’re on the fence about selling, keep an eye on rates and be ready to act quickly if market activity picks up after the election.

Stay Informed and Flexible

The key takeaway? While the election might create some temporary hesitation, the fundamentals of the housing market remain strong. If you're ready to buy, sell, or refinance, don’t wait for the election results—act while rates are still low. Get in touch with a real estate agent or Churchill Home Loan Specialist who can help you navigate these unique times.